- Goldman Sachs (GS +1.3%) is planning €10B in sales of a controversial new type of bond that utilizes total return swaps, at the same time the derivatives are gaining popularity in the market due to the historic lows of credit investments.
- Total return swaps allow investors to gain exposure to a portfolio of bonds or loans without actually having to come up the cash needed to own such assets. Investors pay money to a bank or other counter-party in exchange for income linked to the performance of the underlying basket of securities.
- The new bond is being classed as a "covered obligation," and uses a total return swap struck with Mitsui Sumitomo Insurance on a changeable portfolio of fixed income assets.
- S&P already gave the offering a AAA rating, but Fitch warns that the deal’s "structural protections and collateralization levels are too low" to warrant such a designation.
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